Weekly Roundup 2/1/14: Us and Them: Poverty goes mainstream in the U.S. – can financial innovation help?

“Poverty is no longer an issue of ’them,’ it’s an issue of ’us’.”

The quote comes from Mark Rank, a professor at Washington University, whose 2013 survey on poverty in the U.S. delivered some shocking findings that may seem hard to believe:

Nearly 40 percent of Americans between the ages of 25 and 60 will experience at least one year below the poverty line

The majority of American adults (54 percent) will spend a year in poverty or near poverty (below 150 percent of the poverty line) between the ages of 25 and 60

Half of all American children will live in a household that uses food stamps at some point during their childhood

Four out of five Americans will encounter one or more poverty-related conditions (including welfare use, near-poverty and unemployment)

As Rank put it in the New York Times, “Put simply, poverty is a mainstream event experienced by a majority of Americans. For most of us, the question is not whether we will experience poverty, but when.”

This reality is increasingly defining the country’s political debate. Income inequality was a dominant theme in President Obama’s State of the Union address this week. And – perhaps surprisingly – some leading Republicans have also attempted to take up the mantle of anti-poverty efforts. The issue promises to feature prominently in 2014’s elections and beyond, as the country attempts to deal with the same widening gulf of inequality that has long been at the core of the developing world’s struggles. Yet with a staggering national debt, multiple state budget shortfalls and a chronically gridlocked federal government, public anti-poverty efforts may not be up to the task.

That’s why NextBillion is doing something we haven’t really done before, at least in America, that is: exploring forward-thinking business solutions to domestic poverty. In the coming weeks, NextBillion Financial Innovation will launch our first Domestic Innovations series. It will cover financial solutions to the growing problem of poverty in the U.S., with topics that may include: community development investment, small business lending, impact investing, microlending, investment opportunities for low-income people, diaspora lending/investing opportunities, initiatives to reach the unbanked/underbanked, and social impact bonds. (I say “may include” because our list of prioritized topics is still evolving.)

There is no shortage of innovations to cover – in just the past week, a number of intriguing domestic initiatives have crossed our radar screen. Here’s a small sample:

Social-impact bonds: designed to raise private investments to fund programs that reduce public sector costs, these bonds generate social benefit – and payouts to investors. For instance, Bank of America recently announced it had raised $13.5 million to finance a reform initiative for previously incarcerated criminals in New York state. The funds will provide training and employment programs for 2,000 recently released ex-cons. If the programs significantly reduce recidivism, it will save the state millions in incarceration and related costs, with a portion of those savings going to investors.

Not to be outdone, Goldman Sachs and other philanthropic partners announced the largest ever social impact bond on Wednesday, with $27 million going toward an anti-recidivism program serving ex-cons in Massachusetts. Nonprofit Finance Fund and the James Irvine Foundation also announced 2.5 million in initial funding to bring similar “Pay for Success” initiatives to California.

Community development investment: JPMorgan Chase announced $33 million in funding to community development financial institutions (CDFIs) across the U.S. The program creates partnerships among CDFIs to help them improve access to capital for small businesses, affordable housing and healthy food networks. The goal: to create economic growth and employment opportunities for low- and moderate-income people in high-need communities.

And these initiatives are just the tip of the iceberg. Stay tuned for updates and let us know what financial innovations in America could be deserving of posts in this series.

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